Stop limit orders

Stop limit orders are hybrids of limit and stop orders. Essentially, a stop limit order is a stop order that becomes a limit order after it triggers (elects). The only difference between a stop and a stop limit order is what happens after the trigger.

Stop limit orders are used in the same way as stop orders. Typically utilized as a way to prevent losses, stop limit orders are perfect for investors worried about the lack of price guarantee with a normal stop order. Because the order becomes a limit order after the trigger, the investor maintains a price guarantee.

Sell stop limit orders

Let’s take a look at an example:

Long 100 shares of ABC stock @ $30

Investor places a sell 100 shares of ABC stock @ $25 stop $23 limit

To properly approach a sell stop limit order, focus on the stop first. Sell stops trigger when the market falls to or below the stop price ($25). After the trigger, the sell limit kicks in and the order fills as long as the price is at or above the limit price ($23).

Long 100 shares of ABC stock @ $30

Investor places a sell 100 shares of ABC stock @ $25 stop $23 limit

Trading tape: $25.03… $25.01… $24.99… $24.98… $24.95…

Focusing on the stop first, the order triggers when the market falls to $25 or below. At $24.99, the order triggers and becomes a limit order. Next, the order executes as long as the market price is $23 or higher. At $24.98, the order executes. The limit part of the order ensures that the customer will not sell the stock for anything less than $23 per share.

Let’s see if you understand a sell stop limit.

An investor goes long 100 shares of stock @ $70. They place a sell 100 shares @ $65 stop limit order.

Trading tape: $65.10… $64.90… $64.95… $65.05… $64.85

At what price will the order trigger? At what price will the order execute?

Here’s a video that dives further into sell stop limit orders:

Buy stop limit orders

Let’s take a look at a buy stop limit order:

Sell short 100 shares of ABC stock @ $70

Investor places a buy 100 shares of ABC stock @ $77 stop limit

Again, we will focus on the stop first. Buy stops trigger when the market price rises to the stop price or higher. After the buy limit kicks in, the order fills as long as the price is at or below the limit price.

Sell short 100 shares of ABC stock @ $70

Investor places a buy 100 shares of ABC stock @ $77 stop limit

Trading tape: $76.95… $76.99… $77.02… $77.01… $76.98…

Focusing on the stop first, the order triggers when the market price rises to $77 or above. At $77.02, the order triggers and becomes a limit order. Next, the order executes as long as the market price is $77 or lower. At $76.98, the order executes. The limit part of the order ensures the customer does not buy the stock for anything more than $77 per share.

Let’s see if you understand buy stop limit orders.

An investor goes short 100 shares of stock @ $25. They place a buy 100 shares @ $28 stop $29 limit order.

Trading tape: $27.97… $28.01… $28.09… $27.90… $27.50…

At what price will the order trigger? At what price will the order execute?

Here’s a video that dives further into buy stop limit orders:

Just like limits and stops, stop limit orders can be day or GTC. If placed as a day order, the order will be canceled if it doesn’t execute by the end of the day. If placed as a GTC order, the order will stay open until executed or canceled by the investor.